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Trusts

05/02/2017

“The challenge is starting the conversation. This is one of those times, when conventional advice is right: Ease into the money talk.”

The TIAA 2017 Family Money Matters Survey has some disturbing results. It shows that the families surveyed are OK with the idea of talking about finances, but few follow through. For instance, 74% of parents and 87% of adult children respondents said financial conversations are important—but just 11% of parents and 37% of adult children admit they started a conversation on any financial topic.

The Minneapolis Star Tribune recently reminded readers in its article, “It's high time families start having money talks,” that the money talk is crucial. For parents, the four major topics are estate planning, shelter, personal finances and health care. Parents need a will (and possibly a trust). All information regarding bank accounts, savings accounts, mutual fund investments and retirement savings plans should be documented and collected. Sharing thoughts about housing is important, and family members need to know about your medical directives.

You should try to keep focused on the major topics, like whether they have a will, their plans to stay in the house or moving, along with the number of bank accounts.

One way to get this conversation going, is to also volunteer your own information.

These financial discussions are important and practical. However, they could also be even better by exchanging knowledge, experience, and information about money and values.

One example is charitable giving and volunteering. A study from the University of Indiana-Purdue University, found that parents who volunteer are more likely to have children who do the same. They also found that the choice also goes the other way.

Young and older adults may find charitable giving and volunteering as a good way to share philosophies about money and values. Older adults might think about an ethical or legacy will. That’s a statement of the values you’d like to pass on to your children and other members of your family. Young adults can also tell their parents what values they’ve learned from them.

Compelling evidence shows that millennials get along with their aging parents and vice versa. With that in mind, it’s high time to start the financial talks.

04/25/2017

“Before you name a beneficiary, you may want to gain a basic understanding of beneficiary designations.”

One of the biggest decisions in estate planning is determining the beneficiaries on your life insurance policies, pension plan accounts, IRAs, and annuities.

Some people automatically put down their children or nieces and nephews and then fail to consider the substantial estate and income tax consequences that each beneficiary may have from your generosity.

The Cape May County Herald, in “Naming Beneficiaries: What You Need to Know,” advises that it’s important to know that beneficiary designations supersede a will. Designating your beneficiaries is critical, but you also should talk with an experienced estate planning attorney to be certain that your beneficiary arrangements are consistent with other estate planning documents.

There are several different financial products and investments that allow you to name a beneficiary, but each of them may have some subtle nuances that can be hard to flesh out and understand.

Remember that designating a beneficiary is also a legal arrangement. A beneficiary designation requires that you include certain language to be certain that your wishes are accurately recorded and carried out. That is why it is important to consult with a qualified estate planning attorney when deciding who to name as beneficiaries and how to properly document your wishes. In addition to the specific person you’ll name as your beneficiary, you should consider the following:

The age of the beneficiary, because most policies and plans won’t directly transfer assets to minors until a court approves a conservator;

The ability of a beneficiary to manage assets, because if he or she has trouble with finances, a trust in the person’s name may be a better option than a direct transfer; and

When looking at your pension plan, the law requires a spouse to be the primary beneficiary of the account, unless he or she waives this designation in writing.

Go with a Pro. Naming beneficiaries is not a simple matter. It requires some real planning and thought to be sure that your decisions are consistent with your financial and estate planning goals.

An experienced estate planning attorney will help you to review your beneficiary designations and suggest options that are appropriate for your situation.

04/24/2017

“You’re probably going to die with some debt. A majority of people do.”

Research shows that 73% of Americans had outstanding debt when they died, according to December 2016 data reported by Credit.com. The Richmond Free Press says in a recent article, “Dying with debt: Advice from experts,” that those consumers had an average balance of more than $61,000, including mortgage debt. The average balance was $12,875, without a home loan.

Among the consumers who had debt when they died, about 68% had credit card balances. Here’s the rest of the list:

Mortgage debt 37%

Auto loans 26%

Personal loans 12%

Student loans 6%

In Alabama, debt isn’t passed on to your spouse and children when you die. Debt typically belongs to the deceased person or that person’s estate. But if your spouse or someone else co-signed or was a co-applicant on a credit card or a loan, they’ll be on the hook for any debt when you die. They may also not inherit anything because your estate becomes liable for your debt. Creditors can try to take any funds you leave behind to pay off your balances. If you have enough to pay the debts, the creditors get paid and beneficiaries receive whatever’s left. The creditors will get paid at the expense of the heirs.

If there’s real estate in the mix, it can be sticky. If a home’s your only asset, and it’s where your spouse or children also live, creditors can ask for a sale to cover your outstanding liabilities. Your surviving spouse or other relatives might have to sell the house to pay debts, such as outstanding mortgage payments—or they’ll have to assume your debts to keep the house.

One way to avoid this type of hardship is to purchase life insurance to help with your debts. In addition, you should draft a will. You may also consider setting up a trust to provide ongoing management and assurance that children or others will end up with your assets.

While you’re working with your estate planning attorney on the will and the trust, ask for two powers of attorney, if you become disabled or mentally incapacitated before you die. One POA is to allow a trusted party to make decisions for your healthcare needs, and the other to allow a trusted individual to handle your financial affairs. You should also sign a living will, so your doctors will follow your instructions on end-of-life decisions if you’re not able to communicate because of illness or an accident. Finally, top off the package with a written HIPAA release, so someone can have access to your medical records.

Make a plan. A will is a legal document that provides evidence of your wishes to those who will represent you after death as executor and provides instructions to that person on how and to whom to disburse the assets.

Power of Attorney and Revocable Living Trust. Without a durable power of attorney or a revocable living trust, financial institutions won’t speak with someone trying to help you with your financial affairs. If you’re critically injured or terminally ill and you have no end-of-life care instructions, your family won’t know how to carry out your wishes. A health care power of attorney can empower the person(s) that you choose, to direct your medical care consistent with your wishes.

Beneficiary Designations. Life insurance, retirement plans and financial accounts have beneficiary designations or are held as joint tenants. They, therefore, pass directly to someone else at death without probate. It is important that these designations are consistent with your overall estate plan.

Guardianship. If you have minor children, you need to designate your preference on guardianship. If you have young adult children or others dependent on you for care or financial support, there are trusts that can ensure this support continues during periods of incapacity and after death.

Taxes. You need to look at both income taxes and estate taxes when planning. Inheriting property is typically not a taxable event, but if you are liquidating certain inherited property—like an IRA or an annuity—it can result in a significant income tax bill. Proper planning can help minimize overall income and estate taxation.

03/06/2017

“The beneficiary designation form is one of the most important estate planning documents, but it is often overlooked when creating a legacy plan.”

Baby boomers have been planning and saving for retirement for a long time. They’ve also been planning their legacy. This includes drafting wills, trusts and other estate planning strategies to transfer their wealth to heirs. But some may not know that their IRAs and qualified retirement plans, which can be a big part of their estate, aren’t subject to probate and are not impacted by the terms of a person's will. These assets pass to the next generation via their beneficiary designations.

The estate as a beneficiary. People will inadvertently name their estate as the beneficiary of their retirement accounts by either directing their retirement assets to be paid "pursuant to the terms of my will," failing to complete their beneficiary designation form or forgetting to name a new beneficiary after one dies. When this occurs, these assets are typically paid to the estate by default, which is not the best beneficiary for IRAs and retirement plans. These assets normally avoid probate, but become subject to probate, when paid to the estate. The probate process can be lengthy and expensive. These assets might also have to be liquidated and paid to the estate within five years after a person's death.

Individual beneficiaries can have IRA assets paid over their lifetimes to stretch their tax liability over many years. However, estates do have this option. One more thing: estates are subject to a much higher income tax rate than individuals, sending more money to the IRS than is necessary. Avoid this and make certain that you have an up-to-date primary and contingent beneficiary designated for all of your retirement accounts.

Trust as a beneficiary. Some people use trusts to affect a transfer of wealth and to maximize all available gift, estate, and generation-skipping tax exemptions. However, there are several issues with having retirement assets paid to a trust. The "stretch" rules generally don’t apply to trusts, unless the trust is drafted to be a "look-through" trust. In that case, the IRS lets you "look through" the trust and "stretch" the IRA to the trust over the life expectancy of the oldest trust beneficiary.

It can also be pricey to establish and maintain trusts. These fees can significantly reduce the amount that the ultimate beneficiaries will receive. Finally, trusts are subject to the 39.6% tax rate when the income exceeds $ 12,400. By contrast, married taxpayers filing jointly don’t reach that rate until their income exceeds $366,950, which means if the IRA is worth more than $ 12,400, over a third can be lost to the IRS.

Speak with your estate planning attorney before you designate a trust as a beneficiary of a retirement account.

Ex-spouse as a beneficiary. This is not done intentionally, but it happens. People don’t update their beneficiary designations after a divorce. Some think that the divorce decree will automatically negate their prior beneficiary designations. This is not true.

Per stirpes or per capita. IRA and retirement assets aren’t always distributed as designed. Most IRAs will allow the owner to designate multiple beneficiaries. If an owner designates his or her children as equal beneficiaries, if one predeceases the owner or "disclaims" the inheritance, the remaining primary beneficiaries will usually receive the balance of the IRA and not the children of the deceased beneficiary.Avoid costly mistakes and be sure that the intended beneficiaries inherit your hard-earned assets. Conduct a review of your IRAs and retirement plan beneficiaries regularly.

02/21/2017

“Months after the death of an eccentric multimillionaire, his children are clashing over who should receive his fortune.”

Kansas City’s Del Dunmire was popular for overcoming an unsuccessful bank robbery to become the founder of an international aviation parts company. While he spent some of his fortune on wild parties, he also donated to philanthropic causes, like Children’s Mercy Hospital, the Salvation Army and Kansas City’s Vietnam Veterans’ Memorial Fountain. However, Del’s wealth is at the center of a legal dispute between two of Dunmire’s children, Debra Dunmire Hedenkamp and Mark Dunmire.

The Cass County Democrat Missourian explains in “Children of Del Dunmire may clash in court over rightful heir to fortune,” that Del dreamed of remodeling the Harrisonville square into an arts and entertainment venue. He spent $10 million to purchase 80% of the square’s properties. Hedenkamp alleges that her brother wrongly influenced their father to amend his will and the details of his trust. Those moves cut her out as a beneficiary and bequeathed all of their father’s fortune to her brother Mark.

A trust created by Del in 2008 named three people as the beneficiaries to his fortune: Hedenkamp and her two half-siblings, Joshua and Jasmine Dunmire. His sister claims that Mark was upset that he had been excluded as a beneficiary, and that in 2014, he wrongly influenced their father to change his will and trust in order to be named as the sole beneficiary.

One petition alleges that Mark exerted an “undue influence” and committed fraud to obtain Del’s signature and alter the millionaire’s 2008 will. Another petition makes similar claims against Mark concerning an alteration to Del Dunmire’s 2008 trust.

Among the exhibits in the case, is a document allegedly written by Mark to his father. Hedenkamp claims to have found the document while cleaning out Del’s apartment after he died. The typewritten document, signed “Mark” and addressed to “Dad,” reads in part, “I have left estate planning documents prepared, according to your wishes as you have expressed to me many times. ... Witnesses are easy to come up with, just keep in mind that they may be called upon to testify on the veracity of your signature and your capacity when you signed them, so please choose well.”

The document’s legitimacy has not been confirmed. Hedenkamp’s petitions allege that Mark exploited his father’s bipolar disorder to persuade him to change his will and trust. The petitions also allege that Mark tried to convince his father that the shares to be left to Joshua and Jasmine Dunmire, should instead go to a charity.

“Such representations were intended to and did deceive Delbert L. Dunmire,” Hedenkamp claims in one petition.

Mark Dunmire’s attorney says that Del had the mental capacity to update his will and that the evidence will clearly show that was his intent.

Hedenkamp’s petition asks the court to remove Mark as the personal representative of the estate and to appoint a disinterested person to manage it. She also claims that Mark isn’t the sole beneficiary and that Hedenkamp is entitled to the one-third share left to her in accordance with Del’s 2008 will and trust. Her share is worth over $4 million.

Hedenkamp wants jury trials to settle the disputes in the separate courts and is claiming more than $25,000 in damages from her brother.

Reference: The Cass County Democrat Missourian (January 27, 2017) “Children of Del Dunmire may clash in court over rightful heir to fortune”

02/15/2017

“It's called a trust for a reason: You're counting on this stand-alone legal entity to do something you can't.”

A trust is a good idea to ensure that ownership of your assets will go to your heirs smoothly and privately. A trust can also have some tax advantages and can protect your assets from creditors. But it depends on the trust, says Yahoo Finance, in “How to Choose Between a Revocable and Irrevocable Trust.”

Irrevocable or Revocable Trust

Think about the amount of control you need over your assets because this will dictate if you should have an irrevocable or revocable trust (provided that one of these is appropriate in your situation).

A revocable trust allows you to revoke and rewrite the trust. But an irrevocable trust does just the opposite. You—otherwise legally called the trustor, grantor, or settlor—create the irrevocable trust, then relinquish control to a trustee. You can’t change the terms without getting the approval from the beneficiaries but an independent person can (think your best friend, accountant or attorney). The rule used to be that the amount of control the grantor has over the trust equates to the benefits. The more control you have, the fewer benefits. The less control you have, the greater the potential benefits. Modern trusts, however, can be designed for you to giveupapparentcontrolbut retain actual control,havingyour cake and eating it too.

The main reason for a revocable trust is to accept assets when you can no longer manage your own affairs. When you move assets to a revocable trust, you instruct how they should be used upon your death. This usually occurs without going through probate and usually with some level of privacy for your living heirs. When you pass, a properly set up revocable trust will become an irrevocable trust, with a trustee managing it. As a result, a revocable trust can become somewhat of a substitute for a will and will give privacy to the family.

Incapacity

A revocable trust is useful for setting up plans to handle your assets and income if you become incapacitated. The trust will contain a provision for the continued management of the assets without a formal court order. But you might also achieve the same planning goals by using a general durable power of attorney. Talk with an experienced estate planning attorney to be sure.

The main irrevocable trust advantages (tax advantages) are primarily for the very well-off. Those advantages can be complex. For everyone else (individuals with less than $5,500,000 and couples with less than $11,000,000), the advantages of irrevocable trusts are in addressing special circumstances, like guaranteeing for the continued support of a disabled dependent or ensuring the protection of assets from professional liability or long-trm care cost.

An irrevocable trust can protect assets from creditors, but you need to place the assets in the trust before you have credit problems. Trusts are also used as generation-skipping tools (transferring wealth to your grandchildren), protecting assets in divorce and to provide for your next of kin in a responsible way.

02/03/2017

Muhammad Ali’s estate was relatively easy to settle, by celebrity heavyweight standards, provided the truce between his nine kids and his widow holds. The only item remaining is the venting of grievances and writing the checks, says TrustAdvisor’s recent article “Muhammad Ali Kids Fight Stepmom Over $80 Million Estate Plan.” However, grievances can get fierce, especially with second-generation boxers with grudges to resolve. Don’t count this match over until the last papers are signed.

Most of Ali’s kids—children of several different mothers—aren’t too friendly with their dad’s widow Yolanda or “Lonnie.” They claim that she tried to isolate Ali as his Parkinson’s disease progressed. Another sore point: the will reportedly gives Lonnie a double share of the estate.

Only the youngest of the kids, Asaad, is on Lonnie’s side. She adopted him as a baby, and they’ve always been close. The other kids resent her, especially since she’s going to get $12 million from the estate … compared to their $6 million apiece.

The kids dislike each other only a bit less, so chances are good that a unified front against stepmom Lonnie will fade. But Ali’s estate plan at least eliminates most of the classic disagreement that drives families apart permanently. All of the Champ’s kids get an equal share, so there’s no favorite and no special treatment.

Yolanda’s double share is much less than it would have been naturally. Ali’s attorneys helped him make some decisions when he was still in his peak earnings cycle.

Ali died in Arizona, where he and Lonnie had lived since 2005. It’s a community property state, so Lonnie could simply claw back half of the money Ali earned since he married her 30 years ago—like the $50 million Ali earned for selling his personal brand and a secondary $2 million rights package he cashed out three years before his death.

Lonnie was Ali’s third wife, and his lawyers insisted she sign a prenuptial contract. However, Ali refused to enforce it. She ended up with the house, the art collection and half of a $2 million bond portfolio. He kept the real estate, so the proceeds from the eventual sale of those assets go to the kids, not Lonnie. They also get their share of his holding companies.

Ali’s estate planning lawyers knew their stuff. As a result, their client’s kids don’t have the common concern that so many blended families face. That’s that dad’s last wife will squeeze them out of the family fortune.

12/14/2016

“A good estate plan provides income and security for you and your family during your lifetime. After your death, it provides funds to meet claims on your estate and provides sufficient income and security for your survivors.”

Estate planning involves much more than setting up the transfer of assets after death. Think of it instead as a lifelong process which includes acquiring, using, and preserving assets and arranging to transfer them during life or after death in the most effective way. The Jamaica (WI) Gleaner explains in “Personal Financial Adviser | Why estate planning is necessary” that to start you need to map out your objectives. These can be things like funding the education of your children or providing lifelong support for your spouse. You then need to determine how these objectives are to be met and if the transfer is to be made during your lifetime or after death. It is also necessary to specify the form of transfer, such as by joint ownership, a will or a trust.

The first step is to consult a qualified estate planning attorney. He or she will help you to prepare the necessary documents and advise you on acquiring assets and registering titles in the way that best meets your objectives. Things change, so review your plan every few years. There could be births, deaths, marriages, and divorces in your family; your assets may gain or lose value, and the laws may change.

Estate planning lets you decide who distributes your assets after your passing and can reduce the stress and costs of settling your estate.

A sound estate plan has liquid resources for the beneficiaries and also for prompt settling of debts and expenses. Wills are typically used to transfer assets to beneficiaries, but an experienced estate planning attorney will know about other estate-planning tools that can be implemented to achieve your objectives, perhaps more efficiently and with less expense.

12/05/2016

“It is the biggest fear for every parent in this situation: What is going to happen when I’m gone?”

Thinking about who will care for a family member with an intellectual or developmental disability after parents die is difficult. However, you can help everyone by planning wisely and early.

Sacramento Magazine’s recent article, “When the Caregiver Dies,” reports that millions of parents of children with an intellectual or developmental disability (“I/DD”) must address the real likelihood their children will outlive them and that the responsibility of caring for the child will eventually fall to another. Across the country, there are more than 880,000 people with I/DD who live with a family caregiver over the age of 60, according to The Arc, an advocacy organization for people with I/DD.

Personal safety is a primary concern of these parents because those with disabilities are disproportionately vulnerable to violence. The U.S. Department of Justice says the age-adjusted rate of violent crime against people with disabilities is almost triple that of people without disabilities, and among individuals with disabilities, those with cognitive disabilities experience the highest rate of violent victimization.

There are also other vulnerabilities. Some individuals with I/DD may place trust in people who want to take advantage of them. There are also practical considerations surrounding the loss of a trusted caregiver. A parent who’s intimately involved in daily caregiving is acutely aware of all of the details that make a day run more smoothly. This includes the person’s likes and dislikes, things that can trigger negative behavior, and how to help him or her after an unpleasant experience. It’s very hard to replace a caregiver who has that kind of deeply personal knowledge.

You can increase the odds of a good quality of life and happiness by advocating and planning for your child as soon as possible.

Devising a care plan for someone whose disability prevents them from living independently may involve having a sibling or another close family member assume the caregiving responsibilities in the parents’ home after the parents die. If that’s not an option, families may consider a non-family caregiver, a group home or another place that satisfies the particular needs of the individual.

Regardless of their living arrangements, families of children with I/DD must usually deal with many years of expensive care. One way to plan for a child’s financial future is by creating a special needs trust, which serves as a receptacle for assets intended for the child with a disability. The assets in a special needs trust are generally used to pay costs that government benefit programs don’t cover. By leaving assets to the trust, a person with special needs can still qualify for government benefits. Families can fund a special needs trust by starting early with savings or investments. Buying a life insurance policy with the special needs trust as the recipient of the proceeds is also a good start.

Make sure that you use an attorney with considerable experience setting up special needs trusts, since some estate planners who are not well-versed in disability benefits may not set up the trust correctly and not adequately serve the needs of the child.

A letter of intent, typically written by one or both parents, provides practical guidance about the person’s daily needs, special interests and personal wishes. A letter of intent is very important. Parents should keep a diary for a month about everything they did on a daily basis to care for the child, then translate that into a letter and review it every year. The letter should detail things like the person’s daily schedule and medical history, religious preferences and favorite foods. This is a good way to help current and future caregivers be aware of the needs of the whole person, rather than just their housing or medical needs.

Parents who have a child with a brain-based diagnosis should know, as early as possible in that child’s life, how they operate, their strengths and weaknesses, their likes and dislikes and their desires.